CT Blue

Here's further proof, should anyone need it, that “privatizing” public functions often makes those services more expensive and lower quality.

For decades, citizens have been sold on the mantra that the hungry private sector can do a better and cheaper job of providing services than “inefficient” government. Now it is true that there were some badly run government entities that have done better when privatized (the poster child is British Telecom). But particularly on the state and local level, where voters demand a high level of accountability, this premise was always dubious.

First, as we’ve discussed at some length, outsourcing in the private sector often fails to deliver on their promises. But those dead bodies are seldom discussed. The fleeced buyer has every reason to hide the botched initiative. And they are often prohibited from discussing them: corporate IT projects, for instance, have non-disclosure provisions. As a result, CIO Magazine used a series of failed state outsourcing deals as a forensic exercise relevant to private sector, arguing that the problems were broadly the same.

But a new report by In the Public Interest, Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations, shows why voter should regard outsourcing proposals with considerable skepticism. Remember, a corporate outsourcer will have to preform the same tasks as a government body would, plus he expected to recoup his selling/contracting costs and earn a profit margin. As we’ve seen with mortgage servicers, and the Out of Control confirms, one of the approaches used by private companies to meet their profit targets is to cut corners on compliance with the rules and with service levels. And when outsourcing is motivated not by ideology or a belief that savings can be achieved, but by service problems, all too often there’s reason to suspect that the legislation that the supposedly underperforming bureau is executing is cumbersome or poorly thought out. In other words, the problem is being treated as one of government execution, when it’s actually one of bad drafting or overly complicated requirements that won’t go away by fobbing them off to a private company.

via Naked Capitalism

Not surprisingly, many of these companies go the full Wal-Mart, and exact a hidden subsidy:

The report also reveals that one of the ways these contractors meet their targets is by effectively fobbing costs back on the state, by paying [workers] low wages that force them to rely on public services. in 2008, 80% of the employees working on Federal service contracts made less than a living wage; the level is likely to be similar for state and local contracts. And of course, this means that local governments, perversely, are sabotaging their economies by driving wages and hence demand and eventually their tax bases down.

This is not surprising, so I won't dwell on it more, but I think it helps illustrate a point I've tried to make before. Private companies are certainly good at making things, such as computers, etc., providing that they have competition. I would freely admit that we'd still be struggling with the “C:\” prompt if we had to rely on the government to develop our technology. But government is far superior at providing services. It provides social insurance, for instance, at lower cost and of greater value than private enterprise. The only innovations in which the insurance industry is interested are those that involve new ways to deny coverage. The principles of insurance are well known. It's math, pure and simple. I think we'll find, as we hand over our schools to private enterprise, that the same principle applies. There may be more room for innovation in education than in insurance, but any value added by such innovation will be more than overwhelmed by the harm that will be done to teachers and students alike by profit driven schools. We can see that in the for profit colleges, and we will get no different from for-profit (or pseudo non-profit) grammar schools. We might think we have, for we will no doubt be treated to endless propaganda about how much better our educational system is when we've reduced our teachers to powerless, underpaid and demoralized automatons. But that won't be the reality, no matter what the education CEOs and their bought politicians tell us, just as, despite the propaganda to the contrary, we never have and never will get a decent health care system based on a private insurance model.